The US trade deficit narrowed materially in the month of November to the smallest since June 2003. Although the narrower trade deficit is normally something to cheer about, the details of the report indicate that the only reasons why trade improved was because of the fall in oil prices and slower domestic demand. The big story is in imports, which plunged 12 percent in November. Unfortunately the strength of the dollar did not drive stronger US demand for foreign goods but it did cut exports by 5.8 percent. The US dollar strengthened following the report but the gains may be limited because the report reflects the weakness rather than strength of the US economy.
Meanwhile Canada is at the brink of turning a deficit for the first time in 10 years. Their trade surplus shrank to 1.3B in November, the smallest since October 1997. The toxic combination of falling oil prices and weaker US demand for vehicles has caused exports to drop 6.8 percent the fourth consecutive month.
Unsurprisingly, USD/CAD has soared the following the better trade report from the US and weaker report from Canada. Expect the currency pair to hit 1.2375 as long as it holds above the 1.2150, today’s low.